Effective Knowledge Management in Mergers and Acquisitions

This article draws on the language and understanding of knowledge capture and transfer in the ISPE Good Practice Guide: Knowledge Management in the Pharmaceutical Industry published in 2021.2 The author acknowledges that, in some environments, the culture may be hostile and as such it could be difficult to integrate KM practices. Notwithstanding this challenge, it is useful to have a thoughtful process to explore the opportunities to capture and transfer knowledge.

KM more broadly entered the discussion in the pharmaceutical industry in 2008, when ICH Q10 Pharmaceutical Quality System was published.1 In it, KM was identified as one of the two enablers to a PQS. ISPE published the Good Practice Guide: Knowledge Management in 2021 not only highlighting KM as a PQS enabler, but also describing business advantages to effectively managing knowledge for operational effectiveness.

It may be easy to think about operational effectiveness through the lens of routine operations. However, less-frequent operations, such as M&A, also pose an opportunity for KM to help ensure the success of the transaction and sustained success thereafter.3 Merck & Company highlighted the Scher-ing-Plough acquisition in 2009 as one of the key factors in a programmatic approach to KM.4 A 2020 Pharma Intelligence white paper describes M&A as an essential part of normal business operations, highlighting three key objectives: Accessing external innovation, strategic portfolio management, and delivering on stakeholder returns5 Chancellor reported that between 2000 and 2019 there were 596 major (> $100 million) M&A deals. Building on a solid history of M&A in the industry, Fierce Pharma reported that prospects for future M&A are strong as biopharmaceutical companies have $1.7 trillion to spend on M&A in 2022.

Models to describe M&A phases are plentiful, but here are high-level elements where an organization might apply KM tools and approaches to deliver a successful E2E knowledge transfer:

• Preacquisition (prior to public announcement, inclusive of due diligence): Because preacquisition activities are often fluid, and usually confidential, employment of KM tools in the phase is challenging, thus this phase will not be discussed in this article
• Acquisition (activities post announcement needed to get to “Day 1”)
• Integration and value capture: 1+ years post transaction

Prior to looking at KM in M&A, it is useful to look at typical types of knowledge. The ISPE KM GPG discusses two types of knowledge: explicit and tacit. Explicit knowledge is knowledge that is captured and codified: such examples can include procedures, manuals, papers, and websites. Tacit knowledge is knowledge that resides in the heads of people—their experiences and know-how. Tacit knowledge is much harder to articulate and capture.2 Information is contextualized data, which is a form of explicit knowledge. Both tacit and explicit knowledge have been identified as key to competitive advantage by Rahimli.6 Nonaka, the first Distinguished Drucker Scholar in Residence at the Drucker School and Institute, noted “In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge.”7

A key question is: How might one use KM as a competitive advantage during M&A and what KM tools and processes might one use to maximize the effectiveness of knowledge transfer? The following sections explores the opportunities for applying KM to drive effectiveness of knowledge transfer in M&A in three areas:

• Identification of information and knowledge
• Holistic knowledge transfer
• Retention of critical knowledge

Table 1 gives examples of KM tools and approaches that one might consider to employ, for both tacit and explicit knowledge capture for the three areas.

Identification of Information and Knowledge

During the preacquisition phase of M&A, there is an evaluation of processes, systems, and assets, both physical and intellectual. Many organizations have teams of people that may specialize in evaluations for M&A. One area of opportunity common in other sectors, which the pharmaceutical industry could adopt, is the inclusion of one or more KM subject matter experts (SMEs) on the M&A team; this could be during the due diligence phase and/or the knowledge transfer phase. Examples of companies from other sectors that used KM SMEs for M&A include Schlumberger, AT&T, PTT Exploration and Pro-duction, and SNC Lavin, to highlight a few.8

To assess the landscape prior to knowledge transfer activities, an evaluation of the topical knowledge (e.g., technical knowledge, business processes, R&D elements, etc.), methodologies for storage and retrieval (search) and SMEs should be completed. Due to the scope of the M&A project, it may not be possible to evaluate all processes for knowledge capture, thus a prioritized focus should be developed by the M&A team.

Holistic Knowledge Transfer

When pondering how to optimize knowledge transfer activities for the acquisition, or “Day 1,” phase of the merger and acquisition and what knowledge is needed for integration and value capture, one could consider linking the knowledge transfer to the process of technology transfer (TT). TT is a common pharmaceutical product life-cycle element in which technical product knowledge and process knowledge are shared between a sending site and a receiving site.

TT is not only an important knowledge transfer activity, but it can also be a rich source of new knowledge as often a new process is run on new or different equipment or facilities. It is common for organizations to develop a knowledge transfer plan as an element of a TT plan or specific KM TT plan to outline the objectives, timelines, tools, and processes to be used to capture knowledge created and shared during a TT activity.

How might one use KM as a competitive advantage during M&A and what KM tools and processes might one use to maximize the effectiveness of knowledge transfer?

Linking to the concept of a TT plan, one might consider developing a specific knowledge transfer plan for M&A activities. It may not be possible to capture all topics, but a risk-based approach should be considered when developing such a plan. Additional KM approaches to consider are discussed next.

• Knowledge mapping: This helps organizations understand what knowledge exists in functions and the flow of knowledge through business processes.
• Expertise location: Not all organizations have expertise location systems, but they may be useful to identify SMEs for critical topics.
• Search and taxonomy: Understanding and evaluating technology systems are standard elements of M&A activities; however, the use of common taxonomy and term stores should be evaluated and considered to ensure that any new content/explicit knowledge generated or transferred can be efficiently located in the receiving organization. Systems that effectively use synonyms may enhance search operations as the two organizations’ norm on terminology and nomenclature. The ISPE KM GPG proposes taxonomy is a standard metadata that functions as a common language.1
• After action review (AAR) and lessons learned (LL): AAR is a powerful KM process that provides a framework to reflect and learn. Since 1989, the US Army has used AAR and broadly publishes these reviews for public use.9^, 10 Many organizations use this approach as a starting point but keep it simple, asking several successive questions such as: what was supposed to happen, what actually happened, what went well, what did not go well, and who needs to know. These simple questions set the foundation for lessons to be incorporated into future activities. AAR/LL is a powerful knowledge capture tool with a specific focus on capturing tacit knowledge.
• Communities of Practice (CoPs): These groups of people collaborate for a purpose and aim to connect around a common topic. CoPs topics can be technical (engineering, scientific) or business (project management, operational excellence, etc.). Quick wins for new people joining an organization via M&A activities can be achieved by connecting new colleagues to CoPs in their area of focus. The ability to connect with fellow practitioners can immediately extend their network to gain help and information and to share learnings that may be valuable to their new organization.

An additional area of consideration to aid in knowledge transfer is a review of the information technology (IT) systems of the respective organizations. Interoperability, or the ability for systems to seamlessly exchange and use data and information, is a key consideration of not only data transfer, but also the explicit knowledge to ensure content and document visibility and availability.

Retention of Critical Knowledge

Retention of critical knowledge (ROCK) is key during normal operations but even more important during M&A. KM tools and processes, by design, are intended to enable accessibility and knowledge flow. With that said, a focus on retention of tacit knowledge of the respective organizations, systems, and products should be a central consideration in M&A activities.

Although products and systems are described in many documents (explicit knowledge), there is a tremendous amount of knowledge that is only located within the people of the organization, who are keepers of the know-how and the “know-why” behind decisions and ways of working. The ISPE KM GPG identifies the importance and impact of tacit knowledge and the fact that it is often underappreciated.1 Research by McKinsey demonstrates that in technical fields, tacit knowledge could comprise upwards of 70% of the knowledge.11 Junker and colleagues discuss the prevalence of tacit knowledge in healthcare, noting similar numbers may be found in the biopharmaceutical sector.12

ROCK is a methodology to capture the know-what, know-who, and know-why (tacit knowledge) for those changing roles or leaving the organization. The development of ROCK as a KM tool by Royal Dutch Shell Corporation was discussed in a KM best practice report as a KM process to capture tacit knowledge.13 The concept of ROCK has been leveraged by multiple companies, including pharmaceutical companies such as Merck & Co., Inc. Merck noted that after the 2009 integration of Schering-Plough, it was recognized that “even tenured experts knew only a fraction of the expertise available in the new, expanded global organization.”14

Conclusion

KM has been identified in pharmaceutical regulatory guidance as an enabler to a PQS. In addition, KM has been identified as an enabler to organizational effectiveness and efficiencies. Considering the continuing prospects for M&A in the pharmaceutical industry, it has never been more important for effective KM to be employed. To assist in deploying KM, Table 2 summarizes opportunities to leverage KM tools and approaches to enable M&A E2E knowledge transfer.

In a 2018 publication, both Pfizer and Merck & Co. shared case studies of KM implementation using many of the KM tools and approaches in Table 2. 15^, 16 Because many of these tools and process are commonly known and well-documented in the literature, the author suggests these tools and approaches could be leveraged into other areas of the pharmaceutical business, presenting future opportunities for KM in M&A and knowledge transfer.